As a social media agency, we've been thinking about social media ROI for five years. It's a complex question, made more complex by the fact that many companies cannot draw a direct line between a marketing action and a purchase. This is not unique to social media, as it's true of a lot of television advertising, public relations and many other tactics. And while we work with our clients to calculate direct ROI whenever possible, we are today releasing a new model that any brand can use to calculate their return from social media marketing.

Importantly, it is a relative measure of return. It does not purport to show a connection between social and sales. In this case, we're looking at whether the investment in social media marketing generates results that cost more or less than what it would cost to buy them through traditional online advertising.

How the Purchase Equivalency Calculator Works

The reason brands still invest vast sums of money in advertising is because getting positive mentions of your brand in front of those with a propensity to buy increases sales. With social media, we have channels that are largely opted-in (like Facebook fans or Twitter followers) and we can often use those to reach friends of fans. We know from lots of research that fans and friends of fans are more likely to buy, so reaching these folks is every bit as valuable as advertising. If anything, it's even more targeted.

Impressions

Given that, we calculate the value of impressions the same way a media buy would, with a CPM (cost per thousand) model. For a highly targeted online media buy, you could easily spend $10 CPM, so for Facebook and Twitter impressions (highly, highly targeted) we use a $10 CPM.

Clicks

What about those who do more than look? They see the post and click on it. We can already measure the value of a click, since many of us spend thousands of dollars on Google pay-per-click advertising, trying to get our prospects to click over to our site. So the value of a click can be estimated as being the same as what you would pay for it. For this model, we use $0.50 per click. For you, it may be much cheaper, or much more expensive than that, depending on what keywords you compete over.

Organic YouTube Views

If you measure the number of organic YouTube views you get (subtracting out all those you paid for), you can easily calculate what it would have cost to generate those views through promoted videos on YouTube. You can use what you pay for Promoted Videos, or use our average estimate of $0.20 per view.

Blog Pageviews and Online Brand Mentions

The trickiest elements to quantify are the values of someone visiting your branded blog or mentioning your brand online. To help with this, I built on the work done by Tourism Ireland in their Social Equivalent Ad Model paper. In that, Henry and Harte argue that these activities are deeper interactions than page views. While they can't be directly quantified, Henry and Harte argue that they are at least as valuable as click a Google CPC ad in terms of involvement with a brand. So for this model, we used the same CPC value of $0.50 per click. This is one area in particular that could use some refinement, so comments are welcome.

Amplification Model in Detail: Powerpoint

I've developed a PowerPoint that explains the Purchase Equivalency Calculator in more detail. Feel free to download it and share it, with attribution.

Calculate Your Social Media Return

I've included a spreadsheet here that you can download and change to calculate your own Amplification Model through our Purchase Equivalency Calculator. While you may not be able to use it to say that your efforts generated sales, you may be able to show that your efforts are a highly cost effective way to reach a very valuable audience.

UPDATE, 10/1/2012: While Twitter still does not share impression numbers, I recently learned from them that they do tell clients to assume a 25% view rate of tweets. I was using 12%. To be consistent with Twitter's own benchmark, I've updated the spreadsheet to reflect 25%.

Social Media ROI Defined

For those of you who think visually (or like to print things out), we've created this infographic explaining the Purchase Equivalency Calculator steps in sequence.

Social Media ROI - Ignite Social Media

Add This Infographic to Your Site

Version 1.0

This model can and will evolve. In part through your comments below. What do you think of the model? Strong points? Weak points? What would you change? Let me know in the comments.

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Comments

http://aptsonic.com/ Jason A. Howie

Jim, great article I think it will be very helpful with something I am working on with my company.

What would you say about a brand that incorporates a loyalty wallet or digital coupon system to their social media strategy? How would that affect the ROI?Cost of the coupon for example would have to be applied to this, but the actual value of the resulting sale is traceable. But as I'm writing this I realize that the take rate of the coupon would be fairly low in comparison to the overall presence. Would a separate equation be better suited?

http://aptsonic.com/ Jason A. Howie

Jim, great article I think it will be very helpful with something I am working on with my company.

http://shanx.com/ NearlyNormal

Commend the effort and some interesting math there, but doesn't make much sense when taken within the broader context of marketing budgets at medium to large enterprises. It's arbitrary. I could randomly choose different metrics and arrive at something. The idea should be to be able to benchmark social media's ROI in a way that is comparable to ROI from other vehicles. This is why these gazillions of ROI ideas are senseless..

http://shanx.com/ NearlyNormal

Commend the effort and some interesting math there, but doesn't make much sense when taken within the broader context of marketing budgets at medium to large enterprises. It's arbitrary. I could randomly choose different metrics and arrive at something. The idea should be to be able to benchmark social media's ROI in a way that is comparable to ROI from other vehicles. This is why these gazillions of ROI ideas are senseless..

http://twitter.com/jtobin Jim Tobin

I agree with you that benchmarking social media ROI should be done in a way that is comparable to other vehicles. But it's interesting to me how rare it is that large brands (non e-commerce) have strong ROI models for their advertising, their PR, etc. If they do, we immediately build an ROI model for social that is based on the same structure.

In the case when you don't have it, though, at least you know what you're spending on other marketing and what it gets you. And these numbers aren't arbitrary. They are based on what it would actually cost you to buy those impressions, video views, etc.

http://twitter.com/jtobin Jim Tobin

I agree with you that benchmarking social media ROI should be done in a way that is comparable to other vehicles. But it's interesting to me how rare it is that large brands (non e-commerce) have strong ROI models for their advertising, their PR, etc. If they do, we immediately build an ROI model for social that is based on the same structure.

In the case when you don't have it, though, at least you know what you're spending on other marketing and what it gets you. And these numbers aren't arbitrary. They are based on what it would actually cost you to buy those impressions, video views, etc.

http://fryinginvein.com HubertGAM

This is an interesting tool. I definitely look forward to testing it. Though my intrigue continues to be piqued regarding the stubborn correlation of marketing spend and ROI.

In the traditional business school sense, you cannot gather ROI from marketing expenses. I know people have finessed the abbreviation to mean "Return on Interaction", "Return on Involvement" or some other bastardization which isn't yet taught in post-secondary education. It just doesn't seem healthy to have to obfuscate the truth. Marketing is a necessary expense of doing business.

Now many businesses fail at marketing effectively. Many marketers are not as sharp they should be. They are not providing the communications necessary to affect the bottom line. That is a completely different discussion though.I love this classic Copyblogger post: http://www.copyblogger.com/social-media-marketing-roi/ I recommend it to all my counterparts.

Does Ignite use the same calculator to note the ROI on their own marketing? If so, how does it affect the value placed on services?

http://fryinginvein.com/ Hubert Sawyers III

This is an interesting tool. I definitely look forward to testing it. Though my intrigue continues to be piqued regarding the stubborn correlation of marketing spend and ROI.

In the traditional business school sense, you cannot gather ROI from marketing expenses. I know people have finessed the abbreviation to mean "Return on Interaction", "Return on Involvement" or some other bastardization which isn't yet taught in post-secondary education. It just doesn't seem healthy to have to obfuscate the truth. Marketing is a necessary expense of doing business.

Now many businesses fail at marketing effectively. Many marketers are not as sharp they should be. They are not providing the communications necessary to affect the bottom line. That is a completely different discussion though.I love this classic Copyblogger post: http://www.copyblogger.com/social-media-marketing-roi/ I recommend it to all my counterparts.

Does Ignite use the same calculator to note the ROI on their own marketing? If so, how does it affect the value placed on services?

http://twitter.com/jtobin Jim Tobin

You're right Hubert, this is not true ROI. But that is the language that people use in discussing this topic.

And, yes, we do use this with clients, but it's just one model we use. It depends on the client's goals, what channels they sell through, what data they have available, etc. Those other models are typically custom built, although we're looking for similarities in them to try to publish other models.

http://twitter.com/jtobin Jim Tobin

You're right Hubert, this is not true ROI. But that is the language that people use in discussing this topic.

And, yes, we do use this with clients, but it's just one model we use. It depends on the client's goals, what channels they sell through, what data they have available, etc. Those other models are typically custom built, although we're looking for similarities in them to try to publish other models.

http://twitter.com/jtobin Jim Tobin

You're right Hubert, this is not true ROI. But that is the language that people use in discussing this topic.

And, yes, we do use this with clients, but it's just one model we use. It depends on the client's goals, what channels they sell through, what data they have available, etc. Those other models are typically custom built, although we're looking for similarities in them to try to publish other models.

http://twitter.com/Ulf_Valentin Ulf Valentin

Like it! It helps to describe the media value of socia media. We are competing with other marketing activities and need such calculations. You are right, it becomes difficult with Blog Page Views. They are not exactly "clicks", because they do not lead to a landingpage. Blog Page Views are targeted impressions. Clicks from the Blog to a landingpage would be clicks.

http://twitter.com/Ulf_Valentin Ulf Valentin

Like it! It helps to describe the media value of socia media. We are competing with other marketing activities and need such calculations. You are right, it becomes difficult with Blog Page Views. They are not exactly "clicks", because they do not lead to a landingpage. Blog Page Views are targeted impressions. Clicks from the Blog to a landingpage would be clicks.

http://www.facebook.com/rob.clark Rob Clark

I realize you've stated in other comments that you recognize this is not a true measure of ROI, and you only use the term because others are applying it in that manner. I would say that for those of us reporting to our clients it behooves us to provide it in the manner that leads to least confusion or misunderstanding. If our calculation does not provide ROI, we ought not to use the term.

ROI only arises when there is an actual cost savings realized or hard currency received. I can't take impressions to the bank and exchange for dollars, so impressions and exposure metrics ought not to be making an appearance on any chart or calculation with 'Return on Investment' as the headline.I would also point out for those not familiar with the Barcelona Principles, http://kdpaine.blogs.com/themeasurementstandard/2010/06/the-barcelona-principles-checklist.html , that ad value equivalency is not an accepted measure of PR performance. When you abstract information by adding arbitrary dollar signs, you distract from the reality and can lead to wrong decisions. Run any brand that was hip-deep in a crisis communications situation through this spreadsheet and you will find they spit out high 'ROI' numbers.

Best practice is to measure outcomes rather than outputs. That is what is missing from this model. You stop at impressions without any consideration of why those impressions are being sought.

Social media measurement is not as hard as we make it to be.
* Start with the outcome or change you are looking to create.
* Identify what social gestures or actions would indicate that change/outcome has been achieved.
* Take a benchmark before you act.
* Take a measure again after all your whiz-bang tactics have been executed.
* Now how much have you moved the dial?

http://www.theelusivefish.com/ Rob Clark

I realize you've stated in other comments that you recognize this is not a true measure of ROI, and you only use the term because others are applying it in that manner. I would say that for those of us reporting to our clients it behooves us to provide it in the manner that leads to least confusion or misunderstanding. If our calculation does not provide ROI, we ought not to use the term.

ROI only arises when there is an actual cost savings realized or hard currency received. I can't take impressions to the bank and exchange for dollars, so impressions and exposure metrics ought not to be making an appearance on any chart or calculation with 'Return on Investment' as the headline.I would also point out for those not familiar with the Barcelona Principles, http://kdpaine.blogs.com/themeasurementstandard/2010/06/the-barcelona-principles-checklist.html , that ad value equivalency is not an accepted measure of PR performance. When you abstract information by adding arbitrary dollar signs, you distract from the reality and can lead to wrong decisions. Run any brand that was hip-deep in a crisis communications situation through this spreadsheet and you will find they spit out high 'ROI' numbers.

Best practice is to measure outcomes rather than outputs. That is what is missing from this model. You stop at impressions without any consideration of why those impressions are being sought.

Social media measurement is not as hard as we make it to be.
* Start with the outcome or change you are looking to create.
* Identify what social gestures or actions would indicate that change/outcome has been achieved.
* Take a benchmark before you act.
* Take a measure again after all your whiz-bang tactics have been executed.
* Now how much have you moved the dial?

http://twitter.com/jtobin Jim Tobin

I don't disagree with you Rob, but I think clients are looking for more than that. If we say we want to move needle X, everyone agrees and then we move it. But if that needle is not $$, then the next logical question that arises is, "Well what's that worth?"

For brands that sell through channels (like some of our clients including Chrysler, Samsung televisions and Windows), making the connection between a digital action and a sale is a bit trickier. Not impossible, but much trickier.

I'm familiar with the Barcelona Principles, but I think in this case what we're measuring is much closer to relevant than PR efforts and the dollar values we used aren't arbitrary. Plus, it's a reasonable thing to look at what you could get if you spent the money elsewhere, which is what this model does.

Not perfect, as we all agree, but one thing to look at. I hope we can improve on it as time goes by.

http://twitter.com/jtobin Jim Tobin

I don't disagree with you Rob, but I think clients are looking for more than that. If we say we want to move needle X, everyone agrees and then we move it. But if that needle is not $$, then the next logical question that arises is, "Well what's that worth?"

For brands that sell through channels (like some of our clients including Chrysler, Samsung televisions and Windows), making the connection between a digital action and a sale is a bit trickier. Not impossible, but much trickier.

I'm familiar with the Barcelona Principles, but I think in this case what we're measuring is much closer to relevant than PR efforts and the dollar values we used aren't arbitrary. Plus, it's a reasonable thing to look at what you could get if you spent the money elsewhere, which is what this model does.

Not perfect, as we all agree, but one thing to look at. I hope we can improve on it as time goes by.

http://www.jasonfpeck.com JasonPeck

Really interesting stuff here. Looking forward to plugging some numbers in and looking at this in conjunction with some other ways we evaluate things.

http://www.jasonfpeck.com JasonPeck

Really interesting stuff here. Looking forward to plugging some numbers in and looking at this in conjunction with some other ways we evaluate things.

http://buhlerworks.com/wordpress JEBworks

Excellent contribution to the perennial ROI discussion. I agree especially with the mention in the lead in paragraph that the difficulty in producing a hard measurement of a direct effect on sales is not unique to social media.

http://buhlerworks.com/wordpress JEBworks

Excellent contribution to the perennial ROI discussion. I agree especially with the mention in the lead in paragraph that the difficulty in producing a hard measurement of a direct effect on sales is not unique to social media.

http://buhlerworks.com/wordpress JEBworks

Excellent contribution to the perennial ROI discussion. I agree especially with the mention in the lead in paragraph that the difficulty in producing a hard measurement of a direct effect on sales is not unique to social media.

Johanna

Hi,
I think this is really interesting but i dont't understand what is the 310 about in the Twitter formula. I see it in the infographic but it's not in the presentation.
Thanks!

http://twitter.com/jtobin Jim Tobin

0 is my calculation of the average number of followers that an active Twitter user has.

http://twitter.com/jtobin Jim Tobin

310 is my calculation of the average number of followers that an active Twitter user has.

http://www.carvermediagroup.com/ Digital Branding

Really a wonderful information you share.

http://www.carvermediagroup.com/ Digital Branding

Really a wonderful information you share.

http://www.mazero.com/ Inbound Marking

Very nice article. Also the thing that help us to calculate social media ROI. Thanks for sharing this.

Pietro Paduano

Hi, really interesting model. Just a question: what does it mean 0,12, about Twitter part? Is the average percentage of active followers?

Thank you for the answer
Pietro

http://twitter.com/jtobin Jim Tobin

Hi Pietro. 12% was my metric of what percent of your followers see a given tweet. I got it from some research I did. I've since learned that Twitter tells brands using promotions to use 25% as their organic measure. I have to think they have data of some sort to arrive at this number and that it's better than what I have, so I've updated the model to reflect .25 instead of .12. I hope that helps.

http://twitter.com/jtobin Jim Tobin

Hi Pietro. 12% was my metric of what percent of your followers see a given tweet. I got it from some research I did. I've since learned that Twitter tells brands using promotions to use 25% as their organic measure. I have to think they have data of some sort to arrive at this number and that it's better than what I have, so I've updated the model to reflect .25 instead of .12. I hope that helps.

http://www.seoservicesu.com/ Top Google Ranking

great article I think it will be very helpful with something I am working on with my company.

http://www.facebook.com/carol.illescas Carol Illescas

great! one question why do you use $10 CPM in FB?

http://www.facebook.com/carol.illescas Carol Illescas

great! one question why do you use $10 CPM in FB?

http://wpthemepower.com Zeeshan Siddiqui

Measuring the ROI in terms of impressions is one thing, but it should also be further detailed to show how many of those impressions resulted in conversions. Those numbers would really define the actual ROI in social media marketing.

I believe integration with Google Analytics can help determine such numbers.

Emily F. Whitehead

Hi Jim,

Some very interesting points, especially as we're always trying to capture the ROI of social media influence. At Buzzoole we try and show the actual value of influence.

I understand that the number 310 is the average # of followers an active Twitter follower has according to you, but the excel that explains this is not public. Is there any way to get more information on what the number 310 is based on and how you came to that number? Or can we connect so I can better see the excel?

Actually, the Trevyon Martin case WAS nothing more than a local crime story until the 'social media' picked up on it and got the big money race baiters involved.
Then the liberal media got involved and tried to manufacture a false 'news' story to fit their agenda, which, as we have come to find out, was a massive pack of lies about how poor ol' Trevyon was a 'good boy' and a victim, and Zimmerman was a racist looking for any excuse to kill someone.
The reality is that the liberal media has no desire to merely report the facts, but to force society to fall in line with their ideological views, and the ones who don't are marginalized, or attacked as racists, bigots, mysoginists, and every other name in the book you can think of.

Measuring the ROI in terms of impressions is one thing, but it should also be further detailed to show how many of those impressions resulted in conversions. Those numbers would really define the actual ROI in social media marketing.